Mumbai: The rupee on Tuesday lost a hefty 31 paise to close at over seven-day low of 55.65 against the US dollar on sustained demand of the American currency from importers and worries over higher trade deficit in July.
A firm local stock market on lower-than-expected inflation numbers amid sustained FII inflows restricted the rupee's fall to some extent, forex traders said.
At the Interbank Foreign Exchange (Forex) market, the local currency commenced lower at 55.49 a dollar from previous close of 55.34. It remained in the negative terrain throughout the day as higher trade deficit for the month of July put the currency under pressure.
With dollar demand rising from importers, the rupee dropped further to a low of 55.79 before recovering some ground on around Rs 258 crore worth of FII stock inflows to settle at 55.65, a drop of 31 paise over yesterday's close value. In last three days, the rupee has fallen over 40 paise.
India's exports in July fell 14.8 percent to USD 22.4 billion, while imports fell 7.61 percent to USD 37.9 billion, leaving a trade deficit of USD 15.5 billion. This is wider than USD 10.3 billion recorded in June. Experts said in the long-term, larger trade deficits contribute to a weaker rupee.
"Trade deficit has fallen but not very comfortably," Director General of Foreign Trade (DGFT) Anup Pujari said.
However, a lower WPI inflation number at 6.87 percent for July capped the gains in US dollar, said Anindya Banerjee, Currency Analyst, Kotak Securities.
The dollar index, consisting of six major currencies, was down by 0.08 percent on hopes that European Central Bank may intervene in bond markets amid a set of robust GDP data from Germany and France.
Meanwhile, the Sensex shrugged off initial hesitancy and climbed to a fresh five-month high of 17,728.20 today after gaining nearly 95 points.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said: "The rupee shrugged off the firm local equities amid continued capital inflows. Exports shrank sharply than the imports thereby widening the July trade deficit, thereby pressurising the rupee lower. The softer tone of inflation no doubt has given some respite to RBI but is still above the comfort zone".
The premium for the forward dollar higher on fresh payment pressure from banks and corporates.
The benchmark six-month forward dollar premium payable in January finished up at 179-1/2-181-1/2 paise from Monday's close of 176-178 paise.
The premium for far-forward contracts maturing in July firmed up further to 334-1/2-336-1/2 paise from 326-328 paise.
The RBI fixed the reference rate for the US dollar at 55.6435 and for euro at 68.8135.
The rupee dropped further against the pound sterling to 87.35 from overnight close of 86.88 and also remained weak against the euro to end at 68.73 from 68.34.
The rupee declined further against the Japanese yen to 70.80 per 100 yen from last close of 70.70.
The Forex and Money market will remain closed on Wednesday, August 15, on account of "Independence Day".